17 Inheritance tax

Question 1

What is inheritance tax charged on?

Answer 1

Transfer of value, of chargeable property and by chargeable person

Question 2

When does a charge to IHT arise?

Answer 2

On death, on lifetime gifts where donor dies within 7 years and on some lifetime fights which are taxed at the date of the gift

Question 3

What is a transfer of value? IHT

Answer 3

A gift of any asset which results in a reduction in the value of the donor’s estate.

Question 4

How is the transfer of value calculated? IHT

Answer 4

Value of estate before gift less value of estate after gift

Question 5

When someone dies, what do they become liable of?

Answer 5

1. Value of all of the net assets in their estate

2. Any lifetime gifts made in the seven years provided they are not exempt

Question 6

What is the definition of exempt transfers? IHT

Answer 6

A gift that is specifically deemed to be exempt from IHT

Question 7

What is the definition of potentially exempt transfers? IHT

Answer 7

A gift by an individual to another individual

Question 8

What is the definition of chargeable lifetime transfer? IHT

Answer 8

CLT will be a gift into a trust

Question 9

If an individual gives an exempt gift is gifted during an individuals lifetime, is there IHT payable?

Answer 9

No

Question 10

If an individual gives an potentially exempt gift is gifted during an individuals lifetime, is there IHT payable?

Answer 10

No

Question 11

If an individual gives an chargeable lifetime transfers gift is gifted during an individuals lifetime, is there IHT payable?

Answer 11

IHT calculated using the lifetime rates of tax

Question 12

If an individual lives 7 years, is there any IHT payable?

Answer 12

No

Question 13

If an individual does not live 7 years, is there any IHT payable on exempt benefits?

Answer 13

No

Question 14

If an individual does not live 7 years, is there any IHT payable on potentially exempt benefits?

Answer 14

The PET becomes chargeable on death for the first time

Question 15

If an individual does not live 7 years, is there any IHT payable on chargeable lifetime transfers?

Answer 15

Possibly extra IHT, calculated using the death rates of tax§

Question 16

How are gifts into trusts treated? IHT

Answer 16

CLTs

Question 17

What are lifetime gifts only exemptions and reliefs?

Answer 17

Small gifts exemption
Marriage exemption
Normal expenditure out of income
Annual exemption

Question 18

What are lifetime gifts and death estates exemptions and reliefs?

Answer 18

Inter spouse exemption

Question 19

What is the small gifts exemption?

Answer 19

Less than £250 to one person in a tax year

Question 20

What can a parent give as a marriage gift?

Answer 20

£5,000

Question 21

What can a grandparent give as a marriage gift?

Answer 21

£2,500

Question 22

What can a groom or bride give as a marriage gift?

Answer 22

£2,500

Question 23

What can anyone else give as a marriage gift?

Answer 23

£1,000

Question 24

A lifetime transfer will be exempt if it can show that the gift is:

Answer 24

Is made as part of a person’s normal expenditure out of income, and does not affect the donor’s standard of living.

Question 25

What is the annual exemption available against in IHT?

Answer 25

Lifetime transfers

Question 26

What is the annual exemption for IHT?

Answer 26

First £3,000

Question 27

Can annual exemption for IHT be carried forward?

Answer 27

One year only and used after the year brought forward

Question 28

How should the annual exemption be calculated for IHT?

Answer 28

Applied chronologically to the first gift even if a PET and never becomes chargeable

Question 29

How is a transfer between spouses treated for IHT?

Answer 29

Exempt

Question 30

What is the nil rate band for IHT?

Answer 30

£325,000

Question 31

If the trustees of the trust (i.e. the donee) agree to pay the tax, how is this treated for IHT?

Answer 31

Gift is referred to as a gross gift and pay 20%

Question 32

If the donor agrees to pay the tax, how is this treated for IHT?

Answer 32

Net gift, which is grossed up and then 25% is tax

Question 33

When the exam does not specify who pays the tax?

Answer 33

Assume the donor does

Question 34

What is the date of payment between 6th April - 30th September?

Answer 34

30th April the following year

Question 35

What is the date of payment between 1st October - 5th April?

Answer 35

Six months after the end of the month of the CLT

Question 36

How do you calculate death IHT?

Answer 36

1. Identify gifts within seven years 2. Calculate gross chargeable amount and tax paid 3. Calculate the NRB after deducing gross chargeable transfers, use NRB at death Include PETS 4. Calculate death tax 40% 5. Taper relief 6. Deduct lifetime IHT paid 7. State who will pay, and due date of payment

Question 37

What type of mortgages are deductible on the death estate?

Answer 37

Repayment and interest only mortgages

Question 38

What is included on the death estate pro forma?

Answer 38

property, businesses, stocks and shares, government securities, insurance policy proceeds, cars, chattels, debts due, cash at bank - less debts due by, taxes and funeral expenses

Question 39

When are debts deductiable?

Answer 39

Outstanding at date of death and have been incurred for valuable consideration or were imposed by law

Question 40

When is death tax due?

Answer 40

Earlier of six months after the end of the month of death or on delivery of the account of estate assets to HMRC

Question 41

When a husband dies, what can the partner use of the NRB?

Answer 41

The remaining amount but at NRB in year of second death (i.e. do a percentage)

Question 42

When must a claim to use your husbands NRB be made?

Answer 42

later of 2 years after second death, or 3 months after the executors starting to act